The European Union Commission has recently adopted final sustainability reporting rules as of July 2023, finalizing the CSRD (Corporate Sustainability Reporting Directive). The CSRD is more exhaustive than previous voluntary standards, such as the NFRD (Non Financial Reporting Directive). The new directive is designed to align sustainability and financial reporting and dramatically expand and improve reporting for companies and ESG decision makers alike.
For companies that do business in the EU, getting on top of these reporting requirements is a critical path forward. Schneider’s dedicated experts can support teams in better understanding their quest to follow the new CSRD rules, especially if encountering this mandatory regulatory framework for the first time.
Our teams can assist businesses in many ways, including the preparation of a step-by-step readiness plan for gathering data, creating a gap assessment, and collecting all required metrics relative to energy use, GHG data, and sustainability-related impacts, opportunities, and risks.
The changes, at a glance.
CSRD reporting will be mandatory for a much larger number of organizations
SMBs (Small and Medium Businesses) are now included
The number of companies required to provide sustainability disclosures will expand from about 11,500 to over 50,000
Reports will be expanded and standardized
Third party verifications required
Double materiality assessments
The Benefits of CSRD Reporting
Through effective CSRD reporting, businesses will encounter less risk and create more certainty by being as compliant as possible. Increased transparency – reporting with truthful, verified impacts – will also generate trust among all stakeholders.
The CSRD will bridge the existing information gap. Investors, consumers, policymakers, and other stakeholders will now be able to access standardized, verified, and comparable data. In essence, the CSRD is becoming the common sustainability disclosure platform for large European and global companies – and may even become one of the newer global gold standards in ESG reporting.
Increase credibility of positive reporting impacts. Schneider’s specialized, professional consulting can assist in producing a state-of-the-art CSRD report, in addition to other ESG reporting specific to business and regional needs. A solid report can also help to improve a company’s financial ratings and stand out from a reputation management standpoint.
How the EU’s regulatory environment is embracing sustainability.
Below, is a quick overview of how decisions flow through the EU’s reporting and advisory groups:
- EFRAG (European Financial Reporting Advisory Group) is the first stop along the way to creating new sustainability legislation. EFRAG was commissioned by the EU to draft the CSRD standards.
- CSRD is the new law that requires companies to issue sustainability reports. It will replace: The NFRD (Non-Financial Reporting Directive).
- An increased number of corporations operating in the EU will now be required to report sustainability information relative to the ESRS (European Sustainability Reporting Standards).
- The ISSB (International Sustainability Standards Board) is focused on financial accounting rules. This board is part of the IFRS (International Financial Reporting Standards) of the EU. ISSB rules are currently being updated with a new set of sustainability standards. It will not replace the CSRD.
- Reporting on the GRI (The Global Reporting Initiative) doesn’t automatically align with the CSRD. One big difference is the double materiality assessment in the CSRD.
- The biggest difference between the ISSB and the CSRD? The CSRD is mandatory.
Making the shift and minding the rules
Today, a much larger group of companies will be expected to report on sustainability, increasing from the 11,500 currently covered under the NFRD to about 50,000. An additional 10,000 companies with significant business in the EU will also have to raise their standards of reporting. About a third of these companies are also estimated to be US firms.
Here is an overview of timelines and required reporting entities.
Compliance and complexities
Below are some highlights from the new CSRD rules. It’s clear that compliance will very likely challenge the reporting status quo for many organizations.
- This is not a matter of checking boxes.
- The primary focus is on sustainability.
- Requirements are standardized so investors can make clear comparisons and rate companies based on equivalent data.
- Third party verifications are required.
- Double materiality assessments* are required: These are third-party audited reports on 1.) the impact of sustainability actions on the companies’ value and on 2.) the impact that these actions have on the environment (and vice-versa), people, and the economy.
- Disclosures will be required on Scope 3 emissions from across the entire value chain. This includes emissions that are not directly linked to a company’s own actions, such as those from suppliers, distributors, and customers.
- Additional reporting will be required on biodiversity-related topics, and “own workforce” disclosures for companies with fewer than 750 employees, to be phased in over two years.**
- Organizations can expect more detailed reporting requirements on company environmental impacts, sustainability-related risk, human rights, and social standards.
- Both past performance and road maps for the future will be more standardized.
- The requirements were slightly softened during the adoption phase of the CSRD. There are some legislative changes that will reduce the reporting burden and ease first-time reports. Member states will have a small amount of latitude in adopting CSRD.
Make a plan now to meet CSRD reporting deadlines
The CSRD rules are now a reality for companies doing business in the EU. Meeting these standards will require a more stringent and cohesive approach to measuring, planning, and managing sustainability issues across the enterprise. Working with a team of sustainability consulting specialists can help an organization to create a plan for compliance – and stick to it.
Schneider’s global subject matter experts are well-versed in the CSRD rules and the impacts of this important reporting directive in-region. We encourage you to connect with our team to help navigate this regulatory future.
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* See pages on regulations for complete information on *material impacts, p8 (Section 3.3) and in the Appendix p. 23 (Beginning in section AR6) https://ec.europa.eu/finance/docs/level-2-measures/csrd-delegated-act-2023-5303-annex-1_en.pdf.
**There is a one-year grace period with a 750-employee threshold relative to initial value chain data for Scope 3 emissions, p 29/30 (Section ESRS-E4) and in the Appendix C. https://ec.europa.eu/finance/docs/level-2-measures/csrd-delegated-act-2023-5303-annex-1_en.pdf.